• HEDGEYE’S MARKET BRIEF
    Our FREE Investing Newsletter
    Get Exclusive Summer Sale Discounts

    By joining our email marketing list you agree to receive marketing emails from Hedgeye. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails. All Hedgeye products and services are subject to Hedgeye’s Terms of Service available at www.hedgeye.com/terms_of_service

ISLE’s FQ2 was a disaster. Company EBITDA missed projections by a whopping 24%. EBITDA fell 21% from last year, and last year was certainly no prize. So the stock should be down big, right? Wrong. ISLE’s stock is ripping, up 10%.

I’m not necessarily making a call on ISLE although I am biased to the long side. The $95 million in insurance proceeds from Hurricane Katrina will help the balance sheet, and the company’s liquidity position was already in decent shape thanks to Dale Black, CFO. The suspension of Capex, as announced today, is another good liquidity move.

However, the stock is essentially an option, and there are probably better risk/reward opportunities on the short and long side elsewhere. I do think the investor reaction to these horrendous operating numbers is quite positive for other regional gaming stocks. This may signal a bottom for stocks such as BYD, PNK, and PENN. All of these companies have ample liquidity and are not going away.

This fits the definition of a bad quarter yet the stock is up!